North Korean leader Kim Jong-il has signaled the anointment of his youngest son as heir to the ruling family dynasty as the rival Koreas bolstered their militaries along a disputed sea border on Tuesday.

North Korea, whose increasingly military posturing after last week’s nuclear test has prompted U.S. and South Korean forces to raise the alert level, is readying mid-range missiles for test launches, the South’s Yonhap news agency reported a lawmaker as saying after a defense briefing.

The news rattled financial markets in Seoul, adding to worries over reports the impoverished state is preparing to test fire a long-range missile that could fly as far as U.S. territory. The main Seoul index closed slightly down.

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Analysts believe that Kim Jong-il, whose power base stems from his support for the military, may be using the growing tension to give him greater leverage over power elites at home to nominate his own successor.

It has raised alarm in the region over how far iron ruler Kim, 67 and thought to have suffered a stroke last year, may be prepared to take his latest military grandstanding.